Example 1

Smart Limited has prepared a forecast for the quarter ending December 31, 20X9, which is based
on the following projections:
i. Sales for the period October 20X9 to January 20X0 has been projected as under:

October 20X9 7,500,000

November 20X9 9,900,000
December 20X9 10,890,000
January 20X0 10,000,000

Cash sale is 20% of the total sales. The company earns a gross profit at 20% of sales. It intends to
increase sales prices by 10% from November 1, 20X9. Effect of increase in sales price has been
incorporated in the above figures.

All debtors are allowed 45 days credit and are expected to settle promptly.

The opening balances on October 1, 20X9 are projected as under

Trade debts – related to September 5,600,000

Trade debts – related to August 3,000,000

Based on the given information, preparation a month-wise cash budget for the quarter ending
December 31, 20X9.

 Cash collection from sales

Example 2

Zinc Limited (ZL) is engaged in trading business. Following data has been extracted from ZL’s
business plan for the year ended 30 September 20X2:
Sales Rs. ‘000
Actual:
Sales Rs
January 20X2 85,000
February 20X2 95,000Sales Rs. ‘000

Forecast:
Sales RS
March 20X2 55,000
April 20X2 60,000
May 20X2 65,000
June 20X2 75,000

Following information is also available:

 Cash sale is 20% of the total sales. ZL earns a gross profit of 25% of sales and uniformly
maintains stocks at 80% of the projected sale of the following month.
 60% of the debtors are collected in the first month subsequent to sale whereas the
remaining debtors are collected in the second month following sales.
 80% of the customers deduct income tax @ 3.5% at the time of payment.
 In January 20X2, ZL paid Rs. 2 million as 25% advance against purchase of packing machinery.
The machinery was delivered and installed in February 20X2 and was to be operated on test run
for two months. 50% of the purchase price was agreed to be paid in the month following
installation and the remaining amount at the end of test run.
  Creditors are paid one month after purchases.
 Administrative and selling expenses are estimated at 16% and 24% of the sales respectively and
are paid in the month in which they are incurred. ZL had cash and bank balances of Rs. 100
million as at 29 February 20X2.

Requirement:

A month-wise cash budget for the quarter ending 31 May 20X2.

Example 3
Sadiq Limited (SL) is in the process of preparation of budget for the year ending 31 December
2018. Following are the extracts from the statement of profit or loss for the year ended 31
December 2017:

RS

Sales (30% cash sales) 7,500

Cost of goods sold (4,000)
Gross profit 3,500
Operating expenses (1,250)
Net profit before tax 2,250

Raw material inventory as on 1 January 2017 amounted to Rs. 152 million. There were no
opening and closing inventories of work in process and finished goods.
SL follows FIFO method for valuation of inventories.
Following are the projections to be used in the preparation of the budget:
i. Selling price would be reduced by 5%. Further, credit period offered to customers would
be reduced from 45 days to 30 days. As a result, volumes of cash and credit sales are
expected to increase by 10% and 5% respectively.
ii. Ratio of manufacturing cost was 5:3:2 for raw material, direct labor and factory
overheads respectively.

Raw material inventory would be maintained at 30 days of consumption.

Up to 31 December 2017, it was maintained at 45 days of consumption.

v. Raw material prices would increase by 10%.

vii. The existing policy of payment to raw material suppliers in 30 days is to be changed to
15 days.

The budgeted net cash inflows/(outflows) for the year ending 31 December 2018 (Assuming
there are 360 days in a year).

 Inflows from Sales

 Payment to supplier